With the rising cost of care for children with special needs, parents need to make sure that their special needs child is taken care of when they die. Without proper planning, any money left to their children can cause that disabled child to lose eligibility for state benefits. How do you properly plan for a special needs child? Special Needs Trusts. If you want to ensure your special needs child is protected, you should consider setting up a special needs trust or supplemental needs trust. With a special needs trust in place, your loved one can receive gifts from others, inheritances, settlements, or other monies and not lose their eligibility for programs such as Medi-Cal and Supplemental Security Income (SSI). When drafted right, these trusts can ensure that money the special needs individual receives will not be considered as resources for purposes of determining eligibility for needs-based public benefits. The funds in a special needs trust can be used to supplement the benefits received from the government to assist the special needs individual and enhance their life. There are three main types of special needs trusts: A first-party trust is one that is established to hold the special needs individual’s own assets. This is usually established to hold litigation settlement awards or other large amounts received by the special needs individual. The draw back with this type of trust is that when the beneficiary passes, there is a provision that requires that any Medi-Cal benefits received be paid back from any funds remaining in the special needs trust. However, while the special needs individual is alive, these trusts allow the individual to benefit from the use of their funds as needed while keeping their needs-based benefits such as Medi-Cal and SSI. A third-party special needs trust is established by a third-party for the benefit of the special needs individual with the third-party’s own assets. Most often it will be a parent or other family member who wants to make sure that the special needs individual will be taken care of when they are gone. Like the first-party trust, the funds held in this trust do not count as assets of the beneficiary and if distributions from the trust are made correctly, the beneficiary can retain his needs-based government benefits while retaining the use of the trust assets. With this trust, there is no requirement to payback Medi-Cal with any funds remaining in the trust upon the beneficiary’s death and these funds can be left to any person the third-party who established this trust chose. A pooled trust is the third type of special needs trust. Usually it is funded with the special needs individual’s own money, but can be funded with a third-party’s money. The trustee is a charity who administers multiple beneficiaries’ accounts and pools the money from these separate accounts in order to have greater investment power. This is the only special needs trust available for persons over 65 years of age and it can be a good option if the special needs trust will only be holding a small amount of money. This trust will have a payback provision for Medi-Cal and the charity will retain some of the funds for managing the trust. Life Insurance This is a wonderful estate planning tool and upon your death the insurance can pay directly into a special needs trust that you have established for the special needs individual. All that needs to be done is to establish the special needs trust and ensure that the pay-on-death beneficiary is that special needs trust. If the pay-on-death beneficiary is the special needs individual, that individual can lose their needs-based benefits as soon as the policy pays out. ABLE Account This account is similar to a 529 savings account. The Achieving a Better Life Experience (ABLE) account can be a useful tool if the disabled individual became disabled prior to them turning 26 years old. Any party can deposit up to $15,000 each year in this tax-free account without the account affecting their needs-based government benefits. The maximum that can be held in the savings account without it affecting SSI eligibility is $100,000.00. In California the beneficiary can save up to $529,000 and still be eligible for Medi-Cal. Amounts over this will be counted as resources of the beneficiary. These ABLE accounts can be used for “qualified disability expenses,” which are things like education, transportation, treatment, and other items that will help maintain or enhance a person’s quality of life. Many of these accounts do have a Medi-Cal payback provision. In California, Medi-Cal will not recover from the ABLE account directly, but may recover from the probate estate of the beneficiary under certain circumstances. Get Help with Your Plan However you decide to provide for an individual with special needs, you will need to ensure that proper planning is in place. If you would like to find out more about how we can help you with your estate and special needs planning, please contact us to set up an appointment for a consultation. By: Cara Crownover, Esq. Cara Crownover is an associate attorney at TLD Law. Her practice includes estate planning, special needs trusts, corporate and business law, real estate law, commercial leases, and general civil litigation. Cara works out of the firm’s Irvine and Long Beach offices.